DBRS Assigns Provisional Rating to Rural Hipotecario XVII, FTA

DBRS Ratings Limited (“DBRS”) assigns provisional ratings to the following notes issued by Rural Hipotecario XVII:

--A (high) (sf) to €90,000,000 to Bonds

Rural Hipotecario XVII, FTA (‘RHXVII’) is a securitisation of a portfolio of prime residential mortgage loans secured by properties in Spain and originated by Bantierra, Caja Rural de Granada, SCC, Caja Rural de Navarra, SCC and Caja Rural de Teruel, SCC. At transaction closing, the RHXVII will use the proceeds of the Bonds issuance and Subordinated Loan B to fund the purchase of the mortgage portfolio. The securitisation will take place in the form of a fund, in accordance with Spanish Securitisation Law.

The rating is based upon a review by DBRS of the following analytical considerations:

• Transaction’s capital structure and the form and sufficiency of available credit enhancement; The rated Bonds benefit from 20.50% of credit enhancement in the form of the €11,124,000 (11.00%) Subordinated Loan B and the €9,606,780 (9.50%) Main Reserve Fund, which is available to cover senior fees, interest and principal of the Bonds and the Subordinated Loan B. An Interest Reserve Fund, equal to 10% of the initial collateral balance, exists in order to provide liquidity support and is available to cover payments of Senior Fees and Interest on the Bonds. Both the Main Reserve Fund and the Interest Reserve Fund will be fully funded at transaction closing via the Subordinated Loan B. The Bonds also benefit from full sequential amortisation, where principal on the Subordinated Loan will not be paid until the Bonds have redeemed in full.

The mortgage portfolio consists entirely of loans where the borrower pays a variable interest rate linked to Euribor 12M. In comparison the interest rate payable on the Bonds is linked to Euribor 3M. Limited basis risk exists within the transaction as the majority of mortgage loans (74.47%) reset every 6 months. Also, historically Euribor 12M has been higher than Euribor 3M. DBRS calculated the weighted average Spread of the portfolio at 1.24%, lower than the weighted average spread of the Bonds and Subordinated Loan B is calculated at 1.36%. The Interest Reserve Funds is available to mitigate potential liquidity issues that arise.
• The credit quality of the mortgages backing the notes and the ability of the servicer to perform its servicing duties; The portfolio in RHXVII, although seasoned at 2.59 years, has a higher WA CLTV – at 69.94% - compared to outstanding Rural Hipotecario transactions. The portfolio is concentrated in the autonomous communities of Aragon (37.56%), Andalucia (25.38%) and Navarra (15.57%).From the top three concentrated regions, only Andalucia has experienced house price declines (29.01%) - from the peak to date - which have been lower than national average of Spain,29.01% versus 37.1%. Spanish market value declines were stressed to reflect DBRS’ outlook of the Spanish housing market.

The collateralised mortgage portfolio is highly concentrated with mortgage loans which have been originated post crises. Circa 97.06% of the mortgage loans were originated between 2008 and 2013, a period where lenders tightened underwriting criteria.

In accordance with the transaction documentation, the Servicer is able to apply loan modifications. To factor this into its analysis, DBRS stressed the WA spread of the collateral and applied a maturity extension to 10% of the portfolio.

DBRS was provided with the historical performance data of previous Rural Hipotecario transactions, Series VI to XVI, through 28-Feb-2014, as well as loan level data for the mortgage portfolio of this transaction. Details of estimated defaults, loss given default and expected losses for the mortgage portfolio at the ‘A (high) (sf)’ stress scenario are highlighted below.

• DBRS used a combination of default timing curves (front- and back-ended), rising and declining interest rates and low, mid and high prepayment scenarios in accordance with the DBRS rating methodology to stress the cash flows. Given the low prepayment level observed in Spain, currently below 5%, DBRS also tested a scenario with zero prepayments.

• The legal structure and presence of legal opinions addressing the assignment of the assets to the issuer and the consistency with the DBRS Legal Criteria for European Structured Finance Transactions.

Notes:
All figures are in Euros unless otherwise noted.

The principal methodology applicable is:
Master European Residential Mortgage-Backed Securities Rating Methodology and the Spanish Jurisdictional Addendum

Other methodologies and criteria referenced in this transaction are listed at the end of this press release.

These can be found on www.dbrs.com at:
http://www.dbrs.com/about/methodologies

For a more detailed discussion of sovereign risk impact on Structured Finance ratings, please refer to DBRS commentary “The Effect of Sovereign Risk on Securitisations in the Euro Area” on: http://www.dbrs.com/industries/bucket/id/10036/name/commentaries/

The sources of information used for this rating include Banco CooperativoEspañol S.A.and their agents. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

DBRS does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

This rating concerns a newly issued financial instrument. This is the first DBRS rating on this financial instrument.

Information regarding DBRS ratings, including definitions, policies and methodologies are available on www.dbrs.com

To assess the impact of the changing the transaction parameters on the rating, DBRS considered the following stress scenarios, as compared to the parameters used to determine the rating (the “Base Case”):

• In respect of Bonds and a rating category of ‘A (high) (sf)’, the Probability of Default (‘PD’) of 26.23%, a 25% and 50% increase on the PD.

• In respect of Bonds and a rating category of ‘A (high) (sf)’, Loss Given Default (‘LGD’) of 54.42%, a 25% and 50% increase on the LGD.

DBRS concludes that for the Bonds:

• A hypothetical increase of the PD by 25% or a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to a maintain the rating of the Bonds to A (high) (sf).

• A hypothetical increase of the PD by 50%, would lead to a downgrade of the Bonds to A (sf).

• A hypothetical increase of the LGD by 50%, would lead to maintain the rating of the Bonds to A (high) (sf).

• A hypothetical increase of the PD by 25% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to downgrade the Bonds to A (sf).

• A hypothetical increase of the PD by 50% and a hypothetical increase of the LGD by 25%, ceteris paribus, would lead to downgrade the Bonds to BBB (high) (sf).

• A hypothetical increase of the PD by 25% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to downgrade the Bonds to BBB (high) (sf).

• A hypothetical increase of the PD by 50% and a hypothetical increase of the LGD by 50%, ceteris paribus, would lead to downgrade the Bonds to BBB (low) (sf).

For further information on DBRS historic default rates published by the European Securities and Markets Administration (“ESMA”) in a central repository, see:
http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU regulations only.

Initial Lead Analyst: David Sanchez Rodriguez
Initial Provisional Rating Date: June 18, 2014
Initial Provisional Rating Committee Chair: Quincy Tang
Lead Surveillance Analyst: Elisa Scalco

DBRS Ratings Limited
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United Kingdom

Registered in England and Wales: No. 7139960

The rating methodologies and criteria used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies

Legal Criteria for European Structured Finance Transactions
Operational Risk Assessment for European Structured Finance Servicers
Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
Unified Interest Rate Model for European Securitisations